Website Value Best Determined By Its Profit

Web publishers often debate website value, but they tend to focus on the wrong number.

A common practice is to base the value almost entirely on revenue, but it is profit that reveals much more about a site’s true worth.

The price for a publicly traded stock of a major business is about 15 times its earnings or profit at the time of this writing.

Corporations also measure value using revenue, the revenue metric doesn’t matter so much when a company is losing $1 billion a year. A website is a business and is best measurable the same way.

Profit Versus Revenue

As an example of this valuation strategy, imagine two websites. One has $5,000 a month in revenue and so does the other for a total of $60,000 a year apiece.

If the value of these sites is based entirely on revenue, then they should be bought or sold for the same amount — such as 2.0 times annual revenue or $120,000 apiece.

But now look at the site profit. If the first site has $4,000 in expenses and the second site has $4,500 in expenses, the first site clearly has greater value because it is profitable and the other is not.

Site A should command a much higher price as a result than Site B.

Website Value Based on Profit

Stock market valuations offer a guide to pricing a website. For the example above, use the annual multiple of 15 to establish the value of both sites.

Site A clears $1,000 a month or $12,000 during the year. Multiply the $12,000 in profit by 15, and the site is worth $180,000.

Site B clears $500 a month or $6,000 during the year. Multiply the $6,000 by 15 to get $90,000 or half the value of Site A.

Using a revenue multiple at this point brings a new perspective to valuing a site that way. Site A is worth $180,000 and delivers $60,000 in revenue, which gives it a revenue multiple of 3.0. Site B is worth $90,000 and delivers $60,000 in revenue, so the revenue multiple is only 1.5.

The two sites end up with the same multiple for profit but a much different multiple for revenue.

Website Value Based on Audience

Profit and revenue matter most to a typical business. In media, three numbers matter most: profit, revenue and audience.